Services trade and African integration
William Davis
African Trade Policy Centre
Economic Commission for Africa
Structure of the presentation
Trends in services in Africa
2. Benefits of a strong services sector
3. Barriers to African services trade
4. Policy recommendations
1.
Services’ role in Africa’s economy
Services make an important contribution to GDP in
Africa.
● Services are:
●over 50 % of African output
●fastest growing sector in Africa by far
● Accounted for 70% of the number of investment
projects in Africa in 2012, including ICT (14%) and
finance (13%)
Source: UNECA analysis of International Trade Centre data, UNCTAD data, OECD 2013, ECA research.
Africa’s exports of services, 1980-2012, $million
90,000
Personal, cultural and
recreational services
80,000
70,000
Other business services
60,000
Royalties and licence fees
50,000
Computer and information
40,000
30,000
Financial services
20,000
Insurance
10,000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Construction
es
s
th
er
bu
sin
na
l
at
io
re
cr
e
es
8%
se
rv
ice
s
rv
ic
se
Tr
av
el
es
10%
O
,c
ul
tu
ra
la
nd
se
rv
ic
10%
na
l
n
n
10%
Pe
rs
o
ica
tio
m
un
ru
ct
io
rt
fe
es
Tr
an
sp
o
en
ce
ns
t
lic
s
vic
e
vic
es
se
r
er
es
11%
Co
an
d
an
ce
ur
ls
nc
ia
se
rv
ic
12%
Co
m
s
In
s
Fi
na
at
io
n
fo
rm
in
ltie
an
d
12%
Ro
ya
er
pu
t
Co
m
Growth in African service sectors 2000-13
20%
7%
0.2%
Africa’s imports of services, 1980-2012, $million
140000
Personal, cultural and
recreational services
Other business services
120000
Royalties and licence fees
100000
Computer and information
80000
Financial services
60000
Insurance
40000
Construction
20000
Communications
Travel
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
0
Transport
19
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
0
20 7
0
20 8
0
20 9
10
11
12
13
Africa’s services imports and exports, 1980-2013,
$billion
200
180
160
140
120
100
80
60
40
20
0
Imports
Exports
Services are crucial for Africa’s
participation in GVCs
● Services hub and value chains on the continent can
improve Africa’s competitiveness and participation in Global
Value Chains (GVCs)
● Trade integrated regions are more attractive to lead firms in
GVCs
● GVCs participation can boost regional value chains as
happened in East and Southeast Asia (Valensisi and
Lisinge, 2014)
● African regions most integrated in GVC also show highest
Regional Value Chains (RVC) integration
Source: UNECA analysis of International Trade Centre data, UNCTAD data, OECD 2013, ECA research.
Total services
Other services
Transport
Other
business
services
-6
Construction
Insurance
-3
Government
services n.i.e.
-0.1
Royalties and
licence fees
0.3
Personal,
cultural and
recreational
1
Computer and
information
2
Financial
services
Communications
Travel
Services
category
Africa’s trade balance in services, 2012
18
-4
-10
-20
-33
-41
-71
Potential for intra-African services trade
Currently a net importer
• Net imports of $75bn in 2013
• Includes $38bn net imports in transport
• Total services imports $170bn
$75bn to $170bn that could be captured by African
services firms?
• Success stories of liberalization > trade: mobile phone
sector, banking
Potential for intra-African
services trade
Regional value chains in services
 Intra-African trade in services can increase
business competitiveness (specialization,
economies of scale)
 Botswana, Kenya, Morocco, Rwanda and
Tunisia already services hubs in their
region.
 Includes IT services (e.g. Kenya), finance,
education (e.g. South Africa, Tunisia),
health, construction
Barriers to intra-African services
trade







Free movement
Essential for delivery of services on-site (mode IV)
Facilitated through REC free movement of persons protocols
but only 60% ratification (in 8 AU RECs)
Transport (e.g.)
REC-level frameworks harmonizing transport regulation
COMESA, EAC, ECOWAS, SADC have strong intra-regional
transport facilitation
Challenges:
 e.g. ECOWAS ISRT: incomplete implementation, lack of
regionally accepted guarantee
 Weakness in hard infrastructure
 Air transport – insufficient implementation of
Yamoussoukro
Source: Valensisi and Lisinge, 2014
Restrictions on intra-African services
trade
Transport (contd)
 Few African countries signed 1975 Geneva Customs
Convention, except North Africa
 Regulatory reform and trade in services agreements
(e.g. CFTA) could boost intra-African transport trade
 Source: Valensisi and Lisinge, 2014
Efforts to address
 COMESA Regulations on Trade in Services, EAC
agreement to liberalize, ECOWAS Treaty provisions
on cross-border capital flows
 Implementation? E.g. transport challenges in East
Africa (lack of harmonization)
Infrastructure services are key for
facilitating intra-African trade



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
Trade in goods must go through transport
system
BUT African transport networks of poor
quality causing trade high costs
Import of standard container takes average
35 days and costs > $2,700
Export takes around 30 days and costs ~
$2,000
Intra-African trade costs often higher than
those with rest of world
(source: Valensisi and Lisinge, ‘Trade Facilitation from an African
Perspective’, 2014)
Transport services
Intra-African trade costs 330% of advalorem equivalent (Ibid)
 Very high inland transport costs for
African LLDCs (in some cases 70% of
total cost) (Ibid)
 Literature unanimous that lower trade
costs boost trade performance (Ibid)

Policy recommendations for intra-African
services trade
●Improving transport infrastructure
●Establish
a national production network
(business environment) to include more countries
and SMEs: Increase linkages to other areas of
the economy
●Reduce costs of trading
●Policymakers need to improve incentives for the
emerging services sector to support local firms
and not only large FDIs or companies in the
mining sector
Policy recommendations (contd)
● National policies have to be complemented by strong
regional policies:
● Competitive logistics and convergence in regulatory
policies
Policy recommendations (contd)





Liberalisation of trade in services can help African
businesses to benefit from each other’s expertise
and increase their competitiveness.
But liberalization not always good
Which policies are successful seem to vary by
sector
Forthcoming ECA-AUC research on
infrastructure services examines hundreds of
different policies
Industrial policy often depends on right
institutions
Examples from research
Successful policies in infrastructure
services
 Min number of national board directors
required (but NOT resident)
 Obligation to inform of reason for licence
rejection
Further recommendations
Banking
 Consistent licensing criteria for
domestic/foreign banks
 No min % of national board directors required
Aviation
 License required
 License criteria publicly available
 Nationality requirement for board of directors
Telecoms (fixed and mobile)
First-come, first serve licensing
 Obligation to inform applicants within
required timeframe
 Right to appeal regulatory decisions
 Spectrum use publicly available (mobile)
 No foreign controlling stake in domestic
mobile firms

Maritime auxiliary services
Acquisition of public/private entities
allowed
 Greenfield branch or subsidiary allowed
 Joint ventures allowed
 Licensing through public tender
 Domestic or foreign ships
 No maximum time for licence decision

Shipping
License required & criteria publicly
available
 Nationality requirement for directors
 No max number of days before decision

Rail freight

License criteria
Conclusion

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Services largest sector in Africa’s economy
and increasing its share
Potential for great intra-African trade in
services
Services trade also promotes trade in goods
>promotes efficiency (specialization and
economies of scale), supporting
 Industrialization, which can develop
regional value chains

(contd on next slide)
Conclusion (contd)
Access to global value chains, which
can boost regional integration (as in
East and Southeast Asia)
 More efficient trade-supporting
services within Africa (e.g. transport,
communications, trade finance) can
boost intra-African trade
Regulatory reform needed to capture
potential though some success already
However, cautious approach to liberalization
– sector-by-sector, policy by policy

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Conclusion (contd)
Thank you for you attention!
 Contact: dluke@uneca.org
 Website: www.uneca.org/atpc